Wednesday, 23rd October 2019
By Steve Waters
The immediacy of the modern world certainly has its advantages, but the erosion of our national patience isn’t one of them.
As a society, we’ve become accustomed to getting what we want straight away. It reminds me of my family’s first microwave oven. It could reheat last night’s leftovers in three minutes. THREE MINUTES! It was a modern marvel.
Then the VCR turned up and I could watch full length feature films at a whim without having to wait for network TV to pick up the broadcasting rights.
Nowadays, consumables have become even quicker of course. We’re at a point where world events appear on our phone before the old outlets of newspapers and TV have a chance to tell the story. We can watch live streamed events as they happen, and then wonder why the free-to-air news programs are so slow on the uptake.
This is all to say that the art of the long-term view is a little strained by our new world order – and that’s creating a problem in the property investment sector.
You see, truly successful real estate investment requires two essential ingredients – planning and patience, and these are in short supply.
My solution is something I call ‘Design a Decade’.
Design a Decade
Design a Decade (DAD) means taking the time to ask yourself, “What do I need to do over the course of the next 10 years to insure I’m set up for the rest of my life.”
DAD sets the foundation for building a solid portfolio with an expected outcome at the end.
There are four stages during DAD which you must work through.
Planning is the reverse engineering stage. This is where you decide what you want your end point to look like. You must then plot the path between where you are and where you want to be, with benchmarks along the way to help ensure progress.
Planning also involves establishing your capital requirements – how much you’ll need to reach investment KPIs on the path. You’ll be looking at your budgets, cash flows, strategy types and sources of funds during this stage, as well as how life might change over the coming 10 years.
You’ll also be determining your risk profile so you understand your tolerances and comfort zones.
This is where you methodically follow the strategy you laid out during the planning phase, and begin to purchase investment properties.
You should be purchasing along the path of your timeline, but don’t be rigid in your approach.
Within your own financial and risk tolerances, be an opportunist. During the accumulation phase, prospects will present themselves. Be prepped and ready to go, relying on sound advice to make good decisions.
This phase recognises you can’t just keep purchasing forever – particularly in today’s credit environment. You don’t get to have unlimited funds – it just doesn’t work like that.
So, consolidation is where you take a breath, relax and enjoy life.
You’ve done the heavy lifting in building the portfolio, now let the properties do their hard yakka in terms of growth over time, because growth + time = desired outcome.
The longer you hold property, the better it will do for you.
This phase is actually all about being an active investor, not a passive one. The management phase is crucial because if you aren’t an active investor who has become focussed on controlling the portfolio during the tail-end of the decade, you’ll start eroding any of the potential you’ve built up.
All the hard work you’ve done will dissipate because you took your hands off the wheel.
The management phase is also where you start to see the compounding effect of capital growth and the extraordinary results it can bring.
In truth, during the first seven or eight years of your investing journey, you will feel like you’re not getting anywhere much, but don’t despair.
When you begin to have value growth compounding on top of previous gains, you’ll be excited by its exponential effect.
The keys to success
So, DAD is really about creating momentum.
It’s those first ten years where you’ll get that ‘heavy vehicle’ moving – slowly at first, but positive and progressively picking up speed. By the end of the decade it will become almost self-perpetuating.
The real secret is simply getting started. Don’t be paralysed by the options. Instead, reach out for the guiding hand of an independent property investment advisor, and begin plans now that set you up for the rest of your life.